China's ambitious plan to overhaul its aviation industry includes the construction of 94 new airports within seven years. Although some industry analysts say the goal is unrealistic, China appears to be making significant efforts to attract both foreign and domestic private funds to its aviation sector.

Foreign Investment

In June 2002, the Foreign Investment in Civil Aviation Provisions (the Provisions) were issued with the State Council's approval. Effective in August 2002, the Provisions aimed to further open China's civil aviation industry to foreign investment in airports, public air transport enterprises, general aviation enterprises and other aviation transportation-related projects including fuel supply, maintenance, cargo transportation and warehousing, ground service and airborne food businesses. While the Regulations will undoubtedly provide some investors with new opportunities, others will find that they have achieved little in terms of opening China's aviation industries.

The Provisions were intended to improve upon the initial aviation sector guidelines contained in the Foreign Investment Industrial Guidance Catalogue (the Catalogue), as well as provide investors with a clearer and more detailed legal framework. The Catalogue states that Chinese parties must maintain majority ownership of all PRC civilian airports and public air transport enterprises, thereby limiting foreign investments in these areas to 49%.

The Provisions not only repeated this stipulation but also placed further limitations on public air transport enterprises by capping shares held by any single foreign investor (including affiliated enterprises) to no more than 25%. This restriction reflects the authorities' interest in maintaining management control of public air transport enterprises, which continues to outweigh their stated interest in attracting foreign investors. In addition to the equity cap placed on investments in PRC airports and public air transport enterprises, the Provisions also expanded application of the 49% cap to include foreign investments in general aviation enterprises that engage in business flights, air tours and industrial services as well as aircraft maintenance and aviation fuel businesses.

The Provisions provided some leeway to foreign investors, however, by including a provision that would allow for flexibility in the proportion of shares held by foreign investors in certain aviation-related businesses. It is implied that foreign investors would be permitted to control a majority stake in businesses such as general aviation enterprises that engage in agricultural, forestry and fishery services, cargo shipping and warehousing, ground services, in-flight catering and parking facilities.